Condor Options

Explaining Asymmetric Volatility

Measurements of volatility typically refer to the standard deviation of returns over a specified period. That obviously includes returns both below and above the mean. In practice, however, investors tend to be concerned primarily with downside risk, leading them to regard returns differently: positive and negative logarithmic returns that are equally distant from the mean are not treated as such by investors. Negative surprises have a much greater effect on volatility than do positive ones – witness the explosion of interest…

June Monthly Review

Last October, we were particularly proud of our ability to keep subscribers focused on managing risk and staying in cash before the turmoil really started.  Not content to rest on those defensive laurels, we’ve continued to make gains through 2009, and are now back to levels whereby even an investor who traded blindfolded last year would have made up the lion’s share of any Fall losses.  By contrast, and despite their recent triumphal advance, equity indexes are still down over…

Why Delta Hedging Matters

Some traders use options to speculate on the price movement of an underlying asset; other traders use options to speculate on changes in the volatility, implied or realized, of that asset.  Put a little differently: while no options trader can afford to ignore the role that volatility plays in the price of a contract, not all options traders are interested exclusively or even primarily in volatility. If you’re essentially a stock picker who likes to lever up by buying puts…

A Two Sigma Day

The lower part of the chart below shows how far each day’s price movement deviates from its 21-day mean; the dotted lines mark two standard deviations up and down.  With SPX at 895.70, today looked to be one of those two sigma days. The last such occurrence was on March 2nd of this year, a few days before what the “green shoots” crowd desperately hopes will have been the market bottom.  From a cursory glance at prior instances I draw…